Invesco Mortgage Capital Q1 Earnings Call Highlights

Key Points

• Invesco reported a book value decline of 7.9% to $8.08 and an economic return of -3.2% for Q1, driven by higher interest-rate volatility and wider agency MBS spreads, while economic debt-to-equity rose to 7.5x.
• The firm ended the quarter with a $7.3 billion portfolio (including $5.2 billion of Agency RMBS) and increased TBA exposure to about 17%, with Agency RMBS up 19% QoQ and over 80% of assets carrying some prepayment protection.
• Management hedged roughly 96% of borrowing costs (about 81% of hedges in swaps), said swap‑spread tightening was a modest headwind, but noted early Q2 technicals improved with book value up ~2% and plans to selectively access the ATM after raising nearly $134 million net in Q1.

Invesco Mortgage Capital NYSE: IVR reported a first-quarter 2026 book value decline and negative economic return as interest-rate volatility increased and agency mortgage spreads moved wider, while management emphasized a more constructive backdrop for agency mortgages early in the second quarter.

Leadership transition and strategic focus

Chief Executive Officer Kevin Collins opened the call by highlighting his transition into the CEO role and the retirement of former CEO John Anzalone after a 17-year tenure with the company. Collins also noted President David Lyle’s recent appointment and said the leadership team shares a commitment to “disciplined investment management, to consistent performance, strong governance, and expanded investor engagement.”

Collins said the company remains focused on agency mortgages, pointing to core competencies in Agency RMBS as well as Agency CMBS. He also cited the resources of Invesco, the company’s external manager, including macroeconomic and policy insights and counterparty relationships that support sourcing, financing, and hedging.

Quarterly performance: book value down, volatility up

Collins described the first quarter as a “more challenging market environment” following a strong recovery in agency MBS valuations in the second half of 2025. He said tighter financial conditions were driven by rising geopolitical tensions, higher energy prices, renewed inflation concerns, and increased interest-rate volatility that pushed U.S. Treasury yields higher. Short-term yields rose more than longer-dated yields, which Collins attributed to reduced expectations for near-term policy easing.

Collins added that inflation expectations rose during the quarter, noting that two-year TIPS breakevens increased to approximately 3.25% by quarter end from about 2.3% at the start of the year. He said these dynamics weighed on risk assets and contributed to higher-coupon Agency RMBS underperformance relative to Treasuries. While he said the company’s Agency MBS and Agency CMBS investments “performed…quite well,” the quarter was pressured by increased Agency RMBS risk premiums and “notable swap spread tightening.”

As a result, Collins said book value declined 7.9% to 8.08% at quarter end. Including dividends of $0.12 per month, the company delivered an economic return of -3.2% for the quarter. He also said the company’s economic debt-to-equity ratio increased to 7.5x from 7.0x at the beginning of the year, largely reflecting the book value decline and a more constructive outlook entering the second quarter.

Chief Investment Officer Brian Norris provided additional market context, saying interest-rate volatility rose in the quarter as policy expectations shifted. He noted the 10-year Treasury traded in a 50-basis-point range, reaching a low of 3.94% on Feb. 27 and closing the quarter at 4.32%. Norris said expectations for two Fed cuts in 2026 at the beginning of the year were “largely priced out in March,” contributing to a yield-curve flattening. He also said repo markets for the company’s assets were “remarkably stable,” with financing readily available.

Portfolio positioning: growth in RMBS and TBA allocation

Collins said the company ended the quarter with a $7.3 billion investment portfolio comprised of:

• $5.2 billion of Agency RMBS
• $1.2 billion of Agency TBA
• $0.9 billion of Agency CMBS

He also said the company maintained $493.1 million of unrestricted cash and unencumbered investments. Earnings available for distribution declined modestly to $0.55 from $0.56 in the prior quarter, Collins said.

Norris said the Agency RMBS portfolio increased 19% quarter-over-quarter as the company invested proceeds from common stock ATM issuance. He added the company sold a “modest allocation” to 6.5% coupons early in the quarter due to increased prepayment risk tied to efforts to reduce mortgage rates, while purchases were “primarily focused in 4.5% through 5.5% coupons.”

Norris said Agency TBA securities represented the majority of quarterly purchases as the company sought to benefit from attractive dollar-roll economics, increasing the TBA allocation to approximately 17% of the total portfolio. Despite that increase, he said the portfolio continued to emphasize prepayment protection, with over 80% allocated to securities with some form of protection, including over $5 billion specified pool Agency RMBS and nearly $900 million of Agency CMBS.

On Agency CMBS, Norris said risk premiums tightened in January and remained resilient later in the quarter, with the Agency CMBS position “providing stability in times of stress” and outperforming Agency RMBS across the coupon stack. He said levered gross returns in Agency CMBS were in the “low double digits.”

Funding and hedging: higher hedge ratio amid swap spread headwinds

Collins said the company hedged 96% of borrowing costs at quarter end with interest-rate swaps and U.S. Treasury futures. Norris said repurchase agreements collateralized by Agency RMBS and Agency CMBS decreased to $5.3 billion from $5.6 billion, while total hedge notional increased to $5.1 billion from $4.9 billion. He attributed the higher hedge ratio primarily to the increased TBA allocation.

Norris said the hedge book remained weighted toward swaps, with 81% of hedges in interest-rate swaps on a notional basis, and swap spread tightening during the quarter created a “modest headwind” to performance. He said the company remained comfortable keeping most hedges in swaps because spreads were “relatively tight” and swaps offered an attractive hedge profile versus Treasury futures.

Second-quarter update: book value improved, constructive technicals cited

Management pointed to improved conditions early in the second quarter. Collins said Agency mortgages performed well as risk sentiment improved and interest-rate volatility moderated. He noted two-year TIPS breakevens had fallen to below 3% and said book value had improved by approximately 2% since quarter end, a figure Norris reiterated during Q&A.

Looking ahead, Collins said Agency RMBS net issuance should remain “manageable,” with steady GSE demand and potentially increased bank participation supported by Basel capital framework proposals that improve the capital efficiency of high-quality mortgage assets. He said wider spreads relative to the prior quarter provided more attractive entry points. Collins also said Agency CMBS continued to offer attractive risk-adjusted yields and diversification benefits despite elevated supply.

Collins additionally highlighted balance sheet actions and shareholder alignment initiatives. He said the company reduced preferred equity to “less than 20%” of total equity, which he said reduced costs and benefited common stockholder returns. He also noted the company’s move from quarterly to monthly dividend distributions, which he said better aligns with income investors and provides “monthly touch points” around key metrics.

During Q&A, Collins said the company raised nearly $134 million net through its at-the-market equity program in the first quarter, with issuance “pretty steadily” across the period. He said the company plans to “selectively access the ATM” when it provides a clear benefit to shareholders, calling the ATM the most efficient mechanism for raising capital and saying “responsible growth” can reduce fixed cost per share and improve stock liquidity.

On risk management, Norris said the company did not sell assets during the March volatility and instead invested “at wider levels” as volatility occurred. Asked about the role of TBAs, Norris said they have a structural place in the portfolio and provide liquidity, adding that while the allocation was at the higher end of what the firm would be comfortable with due to attractive dollar-roll conditions, the near-term plan was to keep the allocation where it is.

Discussing the role of the GSEs, Norris said Fannie Mae acted as a backstop in March and that the GSEs added about $35 billion to their retained portfolios in the first quarter, including $18 billion in March. He said that reduced spread volatility and gave the company more comfort to let leverage “drift higher” in March without selling assets, though he noted April outperformance brought leverage back closer to the beginning-of-year level.

About Invesco Mortgage Capital NYSE: IVR

Invesco Mortgage Capital Inc NYSE: IVR is a real estate investment trust that specializes in investing in U.S. residential mortgage-backed securities. The company's portfolio is weighted toward agency-guaranteed RMBS issued or guaranteed by U.S. government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. By focusing on collateral backed by federal agencies, Invesco Mortgage Capital seeks to generate attractive returns while managing credit risk through securities that carry explicit or implicit government guarantees.

To enhance its portfolio yield, the company employs leverage through repurchase agreements, warehouse facilities and debt financing.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.